mass transit sustainability in the saint louis region …...university of missouri – st. louis 240...

Mass Transit Sustainability in the Saint Louis Region Final Report October 2015

Sponsored byMidwest Transportation Center U.S. Department of Transportation Office of the Assistant Secretary for Research and Technology

About MTCThe Midwest Transportation Center (MTC) is a regional University Transportation Center (UTC) sponsored by the U.S. Department of Transportation Office of the Assistant Secretary for Research and Technology (USDOT/OST-R). The mission of the UTC program is to advance U.S. technology and expertise in the many disciplines comprising transportation through the mechanisms of education, research, and technology transfer at university-based centers of excellence. Iowa State University, through its Institute for Transportation (InTrans), is the MTC lead institution.

About InTransThe mission of the Institute for Transportation (InTrans) at Iowa State University is to develop and implement innovative methods, materials, and technologies for improving transportation efficiency, safety, reliability, and sustainability while improving the learning environment of students, faculty, and staff in transportation-related fields.

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Technical Report Documentation Page

1. Report No. 2. Government Accession No. 3. Recipient’s Catalog No.

4. Title and Subtitle 5. Report Date

Mass Transit Sustainability in the Saint Louis Region October 2015

6. Performing Organization Code

7. Author(s) 8. Performing Organization Report No.

Ray A. Mundy, Ph.D.; Daniel L. Rust, Ph.D.; Sareema Koirala Phillips, Sidra

Nasser, María Gabriela Rodríguez Páez, and Elizabeth Snowden 9. Performing Organization Name and Address 10. Work Unit No. (TRAIS)

Center for Transportation Studies

University of Missouri – St. Louis

240 JCPN, One University Boulevard

St. Louis, MO 63121-4400

11. Contract or Grant No.

DTRT13-G-UTC37

12. Sponsoring Organization Name and Address 13. Type of Report and Period Covered

Midwest Transportation Center

2711 S. Loop Drive, Suite 4700

Ames, IA 50010-8664

U.S. Department of Transportation

Office of the Assistant Secretary for

Research and Technology

1200 New Jersey Avenue, SE

Washington, DC 20590

Final Report

14. Sponsoring Agency Code

15. Supplementary Notes

Visit www.intrans.iastate.edu for color pdfs of this and other research reports.

16. Abstract

It has been often suggested that the definition of insanity is doing the same thing and expecting a different outcome. Unfortunately a

dispassionate evaluation of the current state of public transit in the United States would easily fit this definition. Public transportation

funding continues to require federal, state, and local tax reserves in an attempt to address the needs and adapt to the trends of growing

urban communities and support sustainable mass transit solutions. Fifty years of increased funding for domestic mass transit

infrastructure and services has been met with overall ridership decline (as a percentage of urban population). Caught between looming

deficits and a failure to attract consumers is a mangled web of inefficient operations, financially unsustainable funding commitments,

and an inability to adequately modernize transit systems. Despite good intentions, investments are now contributing to an unsustainable

trend.

Successful and scalable examples of ways to improve sustainability are already in place around the globe and are promoting an era of

shared responsibility for mass transit between public and private sectors. Latin America, being the earliest adopter of modern and

sustainable mass transit systems, operations, and infrastructure, has seen great economic and consumer success. Now other regions—

China, India, South Africa, North America, and Eastern Europe—are committing to innovative and rewarding approaches to leveraging

and restructuring mass transit systems.

Although still a work in progress for some cities, the partnering between government infrastructure and private investors supports a

future of flexibility, accountability, and profitability for mass transit in areas with growing urban populations and is a viable solution

for the transportation challenges and environmental concerns associated with large populations. This report explores alternatives

implemented in various countries and the factors that contributed to their successes and failures. Most successes tend to result from the

collaboration itself and lead to each sector’s common triumph: government stability through a reduced dependency on public subsidies

and increased private innovation.

These innovative solutions for improving mass transit are sustainable and scalable and require no additional government funding or

subsidies. They may be the only viable options available for creating sustainable mass transit systems.

17. Key Words 18. Distribution Statement

mass transit innovation—program sustainability—public-private partnership—public

transportation—union pensions

No restrictions.

19. Security Classification (of this

report)

20. Security Classification (of this

page)

21. No. of Pages 22. Price

Unclassified. Unclassified. 63 NA

Form DOT F 1700.7 (8-72) Reproduction of completed page authorized

MASS TRANSIT SUSTAINABILITY

IN THE ST. LOUIS REGION

Final Report

October 2015

Principal Investigator

Ray A. Mundy, John Barriger III Professor for Transportation Studies

Center for Transportation Studies, University of Missouri – St. Louis

Faculty Research Associate

Daniel Lee Rust, Assistant Director for Undergraduate Program Development

College of Business Administration, University of Missouri – St. Louis

Graduate Research Assistants

Sareema Koirala Phillips, Sidra Nasser, María Gabriela Rodríguez Páez, and Elizabeth Snowden

Authors

Ray A. Mundy, Ph.D.; Daniel L. Rust, Ph.D.; Sareema Koirala Phillips, Sidra Nasser, María

Gabriela Rodríguez Páez, and Elizabeth Snowden

Sponsored by

The Midwest Transportation Center and

The U.S. Department of Transportation

Office of the Assistant Secretary for Research and Technology

A report from

Institute for Transportation

Iowa State University

2711 South Loop Drive, Suite 4700

Ames, IA 50010-8664

Phone: 515-294-8103 / Fax: 515-294-0467

www.intrans.iastate.edu

v

TABLE OF CONTENTS

ACKNOWLEDGMENTS ............................................................................................................. ix

EXECUTIVE SUMMARY ........................................................................................................... xi

PURPOSE/PROBLEM STATEMENT ...........................................................................................1

HISTORY OF MASS TRANSIT SYSTEMS .................................................................................1

LITERATURE REVIEW OF U.S. MASS TRANSIT CHALLENGES .........................................5

The Transit Tale of Two Cities ............................................................................................8

METHODOLOGY ..........................................................................................................................8

BI-STATE DEVELOPMENT AGENCY OF THE MISSOURI-ILLINOIS

METROPOLITAN DISTRICT (BI-STATE) ......................................................................8

Quick Facts ..........................................................................................................................8 Transit System Ridership Statistics from the Years 2003 to 2012 ....................................11

Bi-State Service Area Population ......................................................................................16 Metro Transit Operating Data ............................................................................................19 Pension Plans .....................................................................................................................23

Personnel Data ...................................................................................................................26

CHICAGO REGIONAL TRANSPORTATION AUTHORITY ...................................................27

Quick Facts ........................................................................................................................27 Transit System Ridership Statistics from the Years 2003 to 2012 ....................................29 RTA Financial Data ...........................................................................................................33

Pension Plans .....................................................................................................................36

ANALYSIS OF CASE STUDIES .................................................................................................39

VIABLE ALTERNATIVES ..........................................................................................................42

Utilization of Public-Private Partnerships .........................................................................43

Reducing Costs and Increasing Revenue ...........................................................................44 Public Policy Implications .................................................................................................48

REFERENCES ..............................................................................................................................49

vi

LIST OF FIGURES

Figure 1. Transit system ridership statistics, 2004 through 2013 and trend line for 10

years (linear regression) .....................................................................................................12 Figure 2. Transit system ridership statistics, 2004 through 2013 and trend line for 10

years (polynomial regression) ............................................................................................13 Figure 3. Transit system average weekday ridership, 2004 to 2013 and trend line for 10

years ...................................................................................................................................16 Figure 4. Bi-State service area population, 2004 to 2012 and trend line for 10 years ...................17 Figure 5. Total operating revenues and expenses for Metro St. Louis, 2004 to 2013 and

trend line for 10 years ........................................................................................................19 Figure 6. Principal operating revenues and expenses for Metro St. Louis, 2004 to 2013

and trend line for 10 years .................................................................................................20

Figure 7. Total non-operating revenues and total debt for Metro St. Louis, 2004 to 2013

and trend line for 10 years .................................................................................................21 Figure 8. Total assets and total debt for Metro St. Louis, 2004 to 2013 and trend line for

10 years ..............................................................................................................................22 Figure 9. Unfunded actuarial accrued liabilities for all pension plans, 2008 to 2012 and

trend line for 10 years ........................................................................................................24 Figure 10. Unfunded actuarial accrued liability as a percentage of covered payroll for all

pension plans 2008 to 2012, Bi-State, and trend line for 10 years ....................................25

Figure 11. Selected personnel by function, FY 2004 to 2013 and trend line for 10 years ............26 Figure 12. RTA ridership, 2003 to 2012 and trend line for 10 years (linear regression) ..............29

Figure 13. RTA ridership, 2003 to 2012 and trend line for 10 years (polynomial

regression) ..........................................................................................................................30

Figure 14. Chicago area population, 2003 to 2012 and trend line for 10 years .............................33 Figure 15. Primary government revenue and expenses, 2003 to 2012 and trend line for 10

years ...................................................................................................................................34 Figure 16. Expenses, 2003 to 2012 and trend line for 10 years .....................................................35 Figure 17. Revenue sources, 2003 to 2012 and trend line for 10 years .........................................36

Figure 18. Actuarial value of assets, actuarial accrued liability, and covered payroll, 2007

to 2012 and trend line for 10 years ....................................................................................37

Figure 19. Funded ratio and UAAL as a percentage of covered payroll, 2007–2012 and

trend line for 10 years ........................................................................................................38

Figure 20. Required employer contribution, 2007–2012 and trend line for 10 years ....................39

vii

LIST OF TABLES

Table 1. Total federal funding for mass transit, 2002 to 2012 .........................................................3 Table 2. Total funding for mass transit, 2002 to 2012 .....................................................................4 Table 3. 2013 fare box recovery – St. Louis Metro .........................................................................6

Table 4. 2012 fare box recovery – Chicago RTA ............................................................................6 Table 5. Metro service area indicators .............................................................................................9 Table 6. Information available on CAFR Bi-State years ended June 30, 2013 and 2012 .............10 Table 7. Transit system ridership statistics: system total and percentage change, 2005 to

2013....................................................................................................................................14

Table 8. Transit system average weekday ridership, 2005 to 2013 ...............................................15 Table 9. Bi-State service area population, 2004 to 2012 ...............................................................18 Table 10. Bi-State development pension plans and eligibility for full and reduced

retirement benefits .............................................................................................................23 Table 11. RTA service boards and operating characteristics .........................................................28 Table 12. RTA system ridership statistics: system total and percentage change, 2003 to

2012....................................................................................................................................31 Table 13. Chicago area population and percentage change, 2003 to 2012 ....................................32

ix

ACKNOWLEDGMENTS

The author would like to thank the Midwest Transportation Center and the U.S. Department of

Transportation Office of the Assistant Secretary for Research and Technology for sponsoring this

research.

xi

EXECUTIVE SUMMARY

Public transportation funding continues to require federal, state, and local tax reserves in an

attempt to address the needs and adapt to the trends of growing urban communities and support

sustainable mass transit solutions. Fifty years of increased funding for domestic mass transit

infrastructure and services has been met with overall ridership decline (as a percentage of urban

population). Caught between looming deficits and a failure to attract consumers is a mangled

web of inefficient operations, financially unsustainable funding commitments, and an inability to

adequately modernize transit systems. Despite good intentions, investments are now contributing

to an unsustainable trend.

Successful and scalable examples of ways to improve sustainability are already in place around

the globe and are promoting an era of shared responsibility for mass transit between public and

private sectors. Latin America, being the earliest adopter of modern and sustainable mass transit

systems, operations, and infrastructure, has seen great economic and consumer success. Now

other regions—China, India, South Africa, North America, and Eastern Europe—are committing

to innovative and rewarding approaches to leveraging and restructuring mass transit systems.

Although still a work in progress for some cities, the partnering between government

infrastructure and private investors supports a future of flexibility, accountability, and

profitability for mass transit in areas with growing urban populations and is a viable solution for

the transportation challenges and environmental concerns associated with large populations. This

report explores alternatives implemented in various countries and the factors that contributed to

their successes and failures. Most successes tend to result from the collaboration itself and lead

to each sector’s common triumph: government stability through a reduced dependency on public

subsidies and increased private innovation.

These innovative solutions for improving mass transit are sustainable and scalable and require no

additional government funding or subsidies. They may be the only viable options available for

creating sustainable mass transit systems.

1

PURPOSE/PROBLEM STATEMENT

The purpose of this project was to examine the financial sustainability issues faced by most

transit systems in two cities as a way to explore sustainable mass transit service and financial

structure. It is not implied that public transit should be demolished or abandoned, but rather that

public transportation is a necessary addition to, and is supportive of, growing communities. The

ultimate goal is to implement sustainable mass transit options without further burdening federal,

state, or local government taxpayer funds. Public transit is essential for societal mobility,

especially to low-income citizens who cannot afford the luxury of personal automobiles or

multiple vehicles per family.

HISTORY OF MASS TRANSIT SYSTEMS

At the start of the 1950s, the majority of the nation’s transit systems were privately owned and

operated. However, due to increasing operational costs and fare limitations imposed on these

transit systems, they were on the brink of fiscal and physical collapse (Currier 2010). The largest

challenge faced by the privately owned transit systems in that era was that they were considered

public utilities and could not change routes, increase fares, or innovate without permission from

the local or state governments (O’Toole 2010). The government was slow to respond to the

needs of mass transit during this period because of the arrival and increased use of automobiles.

Automobiles proved to be direct competitors to mass transit in attracting local, state, and federal

transportation resources; all levels of government devoted their transportation resources to the

construction and improvement of highways. Then, the Urban Mass Transit Act of 1964 delivered

much needed help to revitalize and expand urban mass transit systems. According to Currier

(2010), the Urban Mass Transit Act authorized $375 million in capital assistance to be provided

over three years. With the passage of this Urban Mass Transit Act, public agencies acquired

private transit companies to ensure the security, maintenance and operation of mass transit. The

objective was to stabilize failing private operations with an infusion of public funds and provide

for future growth.

Following with a series of acts passed after the Urban Mass Transportation Act of 1964, the

federal government continued to expand its role in the nation’s mass transit systems with not

only capital subsidies but also operating subsidies. For example, two years later, Congress passed

the Urban Mass Transit Act of 1966 to fill in gaps and expand the programs established by the

Urban Mass Transportation Act of 1964. As per Currier (2010), the Urban Mass Transit Act

authorized annual appropriations of $150 million through 1969 for matching grants and loans,

enabling states and localities to construct and improve mass transit facilities.

A year later, the passage of the Urban Mass Transportation Assistance Act of 1970 authorized

the first long-term commitment of federal funds for mass transportation. Similarly, in 1974, in

response to increased maintenance and operational costs faced by the transit agencies, the

National Mass Transportation Assistance Act was passed. This act provided federal funds for

mass transit operation subsidies for the first time.

2

According to Currier (2010), the National Mass Transportation Assistance Act authorized $11.8

billion over a six-year period for capital and operating costs. As mentioned above, the initial

purpose of funding mass transit systems by the federal government was to rejuvenate these

entities and run them as an extension of the government. Some believed that without the

involvement of private companies, which had profit motives, mass transit systems would prosper

and grow as the government made investments in them. Unfortunately, despite the investment,

the mass transit systems have failed to thrive as the federal government and proponents of mass

transit funding once expected. Thus, the original purpose of mass transit funding was never

achieved.

In 1982, under the administration of President Ronald Reagan, the Office of Management and

Budget looked into phasing out and eventually eliminating transit operating subsidies. Despite

the Reagan administration’s best efforts, its attempts to phase out operating assistance were

thwarted by the National Conference of Mayors, the American Public Transit Association, and

the transit workers’ unions. As a result, the Federal Public Transportation Act of 1982 also

included funds for operating assistance. As per Currier (2010), the act authorized $16.5 billion

for mass transit through 1986.

The passage of the Federal Transit Act of 1991 authorized $31.5 billion for mass transit over six

years. This resulted in the largest funding increase since the federal government first created

funding programs for transit in 1964. Similarly, the Federal Transit Act of 1998 increased

funding levels by 70%, amounting to $41 billion for transit programs (Currier 2010).

Keeping up with this trend, according to the National Transit Database, federal funding for mass

transit increased by 72.5% over an 11 year period (2002–2012) to $10.8 billion. On average, the

federal government provides 17.86% of the total capital and operating funding for mass transit

(Table 1). Similarly, Table 1 shows that the federal funding for operating activities has increased

by 40.1%, and federal funding for capital investment has increased by 32.4% over an 11 year

period.

Similarly, state funding and local funding increased by 69% and 38%, respectively, over the

same 11 year period (Table 2). The objective of transit stability appears to have been

accomplished through these massive public investments in mass transit. However, the objective

of expanding traditional transit systems has not. Transit ridership continues to languish as it

currently represents approximately 5% of urban trips (Jaffe 2014).

Unfortunately, with increasing costs for operating mass transit and increasing public budget

constraints, the financial sustainability of the mass transit system is uncertain. This trend

highlights the problem that mass transit can no longer continue to function under the same

obsolete principal that it did during the 1960–2010 period—that more financial support equals

greater economic improvement. In order to change the trend, transit systems must be adapted and

changed to meet the public’s current needs.

3

Table 1. Total federal funding for mass transit, 2002 to 2012

Year

Operating

Federal

Funding

Capital

Federal

Funding

Total Federal

Funding Total Funding Federal/Total

2002 $1,302,197,044 $4,993,714,432 $6,295,911,476 $37,096,627,731 16.97%

2003 $1,596,064,856 $5,091,974,305 $6,688,039,161 $38,764,669,696 17.25%

2004 $2,024,216,157 $4,930,228,302 $6,954,444,459 $39,980,023,555 17.39%

2005 $2,243,146,380 $4,611,752,149 $6,854,898,529 $40,924,317,277 16.75%

2006 $2,523,359,552 $5,552,125,521 $8,075,485,073 $43,493,139,290 18.57%

2007 $2,540,380,736 $5,561,325,828 $8,101,706,564 $47,305,205,161 17.13%

2008 $2,567,667,538 $6,418,647,652 $8,986,315,190 $52,565,656,846 17.10%

2009 $3,086,429,384 $7,096,218,825 $10,182,648,209 $54,289,248,536 18.76%

2010 $3,550,943,662 $6,813,141,491 $10,364,085,153 $54,354,844,811 19.07%

2011 $3,571,278,912 $6,926,281,804 $10,497,560,716 $55,412,791,386 18.94%

2012 $3,343,576,584 $7,515,782,462 $10,859,359,046 $58,466,704,589 18.57%

Percentage Increase as of

Total Federal Funding

32.4% 40.1% 72.5% Average 17.86%

Total funding includes funds provided by federal, state, local governments, and other sources

Percentage increase = (2012 ‒ 2001) ÷ 2002 Total Federal Funding

Source: National Transit Database – Operating and Capital Funding: Total Funding Time Series, Operating Funding Time Series, and Capital Funding Time

Series (www.ntdprogram.gov/ntdprogram/data.htm)

4

Table 2. Total funding for mass transit, 2002 to 2012

Year

Federal

Funding State Funding Local Funding Others Total Funding

2002 $6,295,911,476 $7,549,548,335 $12,513,244,859 $10,737,923,061 $37,096,627,731

2003 $6,688,039,161 $7,665,491,425 $13,411,099,203 $11,000,039,907 $38,764,669,696

2004 $6,954,444,459 $7,792,206,949 $13,659,439,016 $11,573,933,131 $39,980,023,555

2005 $6,854,898,529 $8,197,154,962 $14,017,451,539 $11,854,812,247 $40,924,317,277

2006 $8,075,485,073 $8,570,681,969 $14,260,822,603 $12,586,149,645 $43,493,139,290

2007 $8,101,706,564 $9,455,804,640 $16,825,207,835 $12,922,486,122 $47,305,205,161

2008 $8,986,315,190 $11,388,738,326 $18,344,859,645 $13,845,743,685 $52,565,656,846

2009 $10,182,648,209 $11,901,631,478 $18,003,940,218 $14,201,028,631 $54,289,248,536

2010 $10,364,085,153 $11,788,407,359 $17,917,291,156 $14,285,061,143 $54,354,844,811

2011 $10,497,560,716 $11,787,905,172 $16,354,290,316 $16,773,035,182 $55,412,791,386

2012 $10,859,359,046 $12,759,101,661 $17,268,905,063 $17,579,338,819 $58,466,704,589

10 year increase 72.5% 69.0% 38.0% 63.7% 57.6%

Percentage increase as of

Total Funding

12% 14% 13% 18% 57.6%

Local Funding as a percentage of Total Funding for 2012 = 30%

Calculation of 10 year increase: (2012-2002)/2002

Percentage increase: (2012-2002)/2002 Total Funding

Local funding as a percentage of Total Funding = ($17.579 ÷ $58.466) × 100%)

Source: National Transit Database – Operating and Capital Funding: Total Funding Time Series, Operating Funding Time Series, and Capital Funding Time

Series (www.ntdprogram.gov/ntdprogram/data.htm)

5

LITERATURE REVIEW OF U.S. MASS TRANSIT CHALLENGES

Public transit has been facing financial challenges for decades. These challenges include, but are

not limited to, challenges arising from aging infrastructures, declining ridership as a percentage

of urban population, labor, financial and operational burdens imposed by strong unions,

increases in general operating costs, increased affluence, and use of personal vehicles. The

financial challenges faced by public transit are mounting year after year, despite U.S. taxpayers

pumping billions in subsidies and infrastructure into mass transit systems. This massive taxpayer

investment has paid for urban public transportation systems that fewer and fewer Americans are

using. Over the years, mass transit ridership has stagnated at around 5% with population growth

taken into account (Jaffe 2014). Mass transit systems’ failure to attract and retain transit ridership

greatly impacts their financial sustainability, although the public need for urban transit remains

high.

The conveniences provided by owning a personal vehicle pose one of the largest challenges for

mass transit in attracting users. At times, mass transit simply cannot go where and when a rider

would like to go. In addition, because of rising personal incomes, individuals are more likely to

prefer the use of personal vehicles as opposed to riding mass transit. As personal incomes in the

United States rise, private vehicle ownership and usage continue to grow. Additionally,

individuals tend to move further out from the city centers, causing a decrease in urban density

that affects the relative use of private transportation and public transit (Ong et al. 2010). Because

of this trend of moving away from city centers, building urban transit systems that can compete

with the conveniences provided by the automobile is an incredibly expensive and unrealistic

option. As per O’Toole (2010), in 2007 Americans spent 9.2% of their personal income on

driving and 0.6% on all other forms of passenger transportation. O’Toole (2010) further points

out that taking higher energy prices into consideration does not change the percentage of

personal income that Americans spend on driving, because urban transit requires about the same

amount of energy as driving. Thus, the long-term response to high oil prices is to drive fuel-

efficient cars instead of driving less or using mass transit systems. O’Toole (2010) also notes that

when gasoline prices doubled in 2008, people reduced their driving by a mere 4%, but if prices

had remained high, they would have purchased fuel-efficient cars and returned to prior levels of

driving. With the 21st century’s advances in transportation technology towards more fuel-

efficient cars, the popularity and widespread use of such models as the Toyota Prius and Nissan

Leaf reinforce O’Toole’s views.

As discussed earlier, federal funding for mass transit has increased by 72%, for operating

activities by 32.4%, and for capital investment by 40.1% over an 11 year period (2002 through

2012). The data obtained from the National Transit Database shows that mass transit systems in

the United States rely heavily on federal subsidies for both operating and capital expenditures,

with more and more funds coming from local tax levies. The analysis of this data shows a trend

towards increasing government funding for operating activities over the years. The inability of

the transit systems in the United States to recover even a small portion of their operating

expenses from the fare box escalates the reliance of the transit systems on public subsidies

without providing incentives for transit systems to be self-sufficient. For example, in 2013 the

fare box recoveries of variable operating costs for St. Louis MetroBus, MetroLink, and Call-a-

Ride were 20.80%, 27.20%, and 4.9%, respectively (Table 3).

6

Table 3. 2013 fare box recovery – St. Louis Metro

St. Louis Metro Fare box recovery

MetroBus 20.80%

MetroLink 27.20%

Call-a-Ride 4.90%

Source: Bi-State Development Agency of the Missouri-Illinois Metropolitan District Comprehensive Annual

Financial Report (CAFR) Fiscal Years Ended June 30, 2013 and 2012

Similarly, in 2012, the fare box recoveries for Chicago Transit Authority (CTA), Pace (suburban

bus), and Metra (commuter rail) were 42.90%, 13.30%, and 47.50%, respectively (Table 4).

Table 4. 2012 fare box recovery – Chicago RTA

Chicago RTA Fare box recovery

Chicago Transit Authority 42.90%

PACE 13.30%

Metra Rail 47.50%

Source: National Transit Database (2012) - Top 50 Agencies

www.ntdprogram.gov/ntdprogram/pubs/top_profiles/2012/Transit%20Profiles%20Top%2050%20Agencies.pdf

This is to be expected because the Chicago Regional Transportation Authority (RTA) serves a

much more densely populated area. According to the Federal Transit Administration (FTA), the

fare box recovery ratio for national transit systems in 2012 was 32.8% (FTA 2013) of their

variable operating costs when total costs were considered by adding fixed costs of infrastructure

and rolling stocks.

According to Buehler and Pucher (2011), subsidies for public transport in the United States have

more than doubled from 1991 to 2007 since the passage of the Intermodal Surface Transportation

Efficiency Act (ISTEA). During this period, the subsidy has increased from $14 billion to $32

billion, while vehicle kilometers of public transport supply rose by almost 20% and passenger

trips increased by only 16%. However, as Buehler and Pucher (2011) note, these statistics hardly

grew when controlling for population growth, and the share of operating expenses covered by

farebox revenue fell from 37% in 1992 to less than 33% in 2007. The authors further explain that

from 1992 to 2007 the transit agencies expanded their services at a faster rate than ridership

increased, which caused the ridership to decline along with fare box revenue per vehicle-

kilometer of transit service (Buehler and Pucher 2011).

Contributing to low productivity and high costs for the public transit systems, and thus putting

into question the long-term sustainability of the mass transit systems, are the unions that have a

restraining effect on the public sector’s ability to innovate and be flexible in varying its mass

transit product offerings to the riding public. As one might expect, public sector unions push for

higher pay irrespective of ridership or fare box revenues, thereby increasing government

spending, and give little regard for the financial viability of the mass transit system. According to

Edwards (2010), on average union members had a 31% advantage in wages and a 68%

7

advantage in benefits as compared to their nonunion counterparts performing similar tasks in

private industry. Besides raising compensation costs, public transit unions reduce government

efficiency in other ways. For example, these public unions tend to protect unproductive workers,

retain more staff on payroll than necessary, and discourage the use of volunteers in government

activities (Edwards 2010).

One of the ways to measure the value, productivity, and progress of the mass transit systems is to

measure the increase in ridership over the years. As mentioned earlier, transit ridership hovers

around 5% when population growth is taken into account (Jaffe 2014). However, the

productivity of the mass transit systems has remained more or less constant over the years. On

the other hand, the costs of operating the mass transit systems have increased due to the wage

rates and benefits that are well above the market rates. The situation here is unlike that at any

private organization, because a private organization would be unable to sustain the trend of flat

productivity coupled with increased labor costs. Eventually, market forces would force a private

organization out of business. On the contrary, market forces are not a threat to a public mass

transit system, because the increased costs of labor for the transit employees are heavily

subsidized by the taxpayers.

Proponents of mass transit systems emphasize the reduction in air pollution, road congestion, and

fuel consumption through the use of mass transit. They also suggest that there could be

revitalization of cities and cost savings for individuals, in an effort to draw users out of their

automobiles and into mass transit systems. While these elements do encourage citizens to try

public transit initially, the quality of the public transit (which is affected by waiting period, aging

infrastructures, and personal safety issues) determines whether or not these individuals become

habitual users of mass transit. Indeed, waiting period greatly affects the quality of public transit.

According to Redman et al. (2013), European Local Transport Information Service documented

that a bus service about six minutes faster than a trip done by car achieved a car mode share

reduction from 34% to 22% in Dublin, Ireland (Redman et al. 2013). Thus, transit services that

are faster than private auto traffic will be successful in attracting riders.

Aging infrastructures are also an issue. The public transit systems in the United States have been

facing problems due to lack of funds needed to make repairs. The aging transit systems are more

likely to be prone to delays due to maintenance issues. Some of these systems lack state-of-the-

art safety systems and are unable to meet basic operational needs. These factors ultimately

reduce the quality of the transit system and could drive away transit system riders towards

alternative modes of transportation. Redman et al. (2013) propose that public transport suppliers

must be aware of the quality attributes that are most valued by the potential new automobile

users and then perform public transport improvements addressing those preferences.

Additionally, according to Buehler and Pucher (2011), the mass transit system in the United

States lacks integration of different modes of public transportation at metropolitan, regional, and

national levels, while integration makes public transportation convenient and attractive to riders.

The authors further point out that there is little integration of suburban bus timetables with rail

transit timetables, and many transit stops are not in walking- or bicycle-friendly areas, with no

sidewalks or only short portions of sidewalks (Buehler and Pucher 2011).

8

With the viability of modern technology and accessibility of smartphones, regional transit

authorities should invest in applications (apps) that provide real-time information on transit

routes and timetables and sync all the information together. In addition, the use of reloadable

smart cards instead of paper tickets and transfer slips for mass transit creates value-added

services, not only for the mass transit riders, but also for the transit authorities. For example, use

of smart cards diminishes the need to carry cash or have exact change (Metro Transit – St. Louis

2014). Additionally, the bus operators do not have to hassle over exact change, which will

ultimately lead to saved time and more efficient services provided by the mass transit system.

Most of the transit systems in the United States accept cash as a form of payment. Cash is the

one asset that is most susceptible to theft. With the widespread use of smart cards, the transit

system authorities are less likely to face a reduction in revenue due to theft by employees that

handle the cash collected via fare box. Additionally, with the use of smart cards, the collection of

fares is electronic. Thus, transit systems can reap the benefit of efficient and real-time data

updates into their system.

The Transit Tale of Two Cities

In order to substantiate the hypothesis that the current financial trends of the mass transit systems

are not sustainable, two transit systems are researched below: the Bi-State Development Agency

of the Missouri-Illinois Metropolitan District (Bi-State) and the Chicago Regional Transportation

Authority. The data analyzed were obtained from the Comprehensive Annual Financial Reports

(CAFRs) from both the Bi-State Development Agency and the RTA (Bi-State Development

Agency 2013, RTA 2012, and RTA 2013). The CAFRs are comprised of a set of financial

statements required by state law that are audited in accordance with U.S. Generally Accepted

Auditing Standards by an independent firm of public accountants.

METHODOLOGY

The methodology consisted of two steps. The first step was to analyze operating revenues, non-

operating revenues, personnel data, ridership statistics, population, and pension plans over a 10

year span. The second step was to create a forecast of estimated activity over the next years if no

changes are made to the system.

BI-STATE DEVELOPMENT AGENCY OF THE MISSOURI-ILLINOIS

METROPOLITAN DISTRICT (BI-STATE)

Quick Facts

In 2013 MetroBus celebrated its 50th anniversary. As per the CAFR, “MetroBus is the largest

part of the transit system carrying 29.4 million riders during FY 2013.” MetroBus operates 74

lines in Illinois and Missouri (Bi-State Development Agency 2013). Metro Call-A-Ride

celebrated its 25th anniversary in FY 2013. That year, Call-A-Ride carried 591.2 thousand

customers and operated 5.2 million revenue miles. MetroLink operates two lines: Red Line and

9

Blue Line. The Red Line operates from the St. Louis-Lambert Airport (north St. Louis County)

to the Shiloh-Scott Station (Shiloh, Illinois). The Blue Line operates from the Shrewsbury-

Lansdowne Station (Shrewsbury, Missouri) to the Fairview Heights Station (Illinois). According

to annual performance indicators, the Metro service area has the indicators shown in Table 5.

Table 5. Metro service area indicators

Indicators MetroBus MetroLink Call-A-Ride vans

Active fleet size-total vehicles 382 87 117

Passenger trips 29,408,800 17,054,484 591,197

Revenue miles 18,478,303 3,118,537 5,246,725

Fare box recovery 20.8% 27.20% 4.9%

Source: Bi-State Development Agency 2013

The trends for selected datasets from the CAFR, years ending June 30, 2013 and June 30, 2012,

from Bi-State were examined. The purpose of the analysis was to look at possible data trends

that may give a better idea of the current and future standing of the public transportation system

in Missouri-Illinois in terms of financial sustainability, ridership, and funding. The reviewed data

makes reference to the multi-modal mass transit system that goes by the name Metro. The Metro

system includes three modes of transportation: MetroBus, MetroLink, and Metro Call-A-Ride.

The data collected from the CAFR from Bi-State are available in Table 6.

Most of the data has been fitted using a linear regression to account for the goodness of fit of the

model or 𝑅2 (the amount of the variance in the observed dependent variable that can be

explained by the model, in this case, by the trend across the years) and has been projected 10

years ahead in order to look at future trends based on actual data.

10

Table 6. Information available on CAFR Bi-State years ended June 30, 2013 and 2012

INFORMATION FOR LAST 10 FISCAL YEARS IN 2013 CAFR - FY 2004 TO FY 2013

Annual Average Unemployment Percent Rate In Bi State Service Areas

Bi State Service Area Population

Capital Assets Stats By Function And Program

Capital Assets

Executive Services- Operating Revenues, Expenses, Net Income

Mass Transit Sales Tax Bonds- Operating Budget

Mass Transit Sales Tax Bonds- Sources And Uses For Operations

Net Position By Operating Org

Operating Data- Gateway Arch Parking Facility

Operating Data- Gateway Arch Riverfront Attractions

Operating Data- Gateway Arch Tram System

Operating Data- Metro Transit

Operating Data- St Louis Downtown Airport

Operating Revenues, Expenses, Net Income

Per Capita Personal Income By Region

Personnel Data

Ratio Of Outstanding Debt By Type

Ridership Stats

Transit System Mileage Statistics

Transp Sales Tax Collections & Receipts

Use Of Proposition M Sales Tax

INFORMATION FOR FY 2012 IN 2013 CAFR

Assets By Org -In 2013 Cafr

Cash Flow From Operating Act- In 2013 Cafr

Cash Flows By Org & Net Increase In Cash Equivalents- In 2013 Cafr

Liabilities By Org & Net Position- In 2013 Cafr

Net Cash Provided Used For Operating Activities- In 2013 Cafr

Operating Revenues & Non Operating Rev By Org- In 2013 Cafr

11

Table 6. Information available on CAFR Bi-State years ended June 30, 2013 and 2012

(continued)

INFORMATION FOR FY 2013 IN 2013 CAFR

Assets By Org

Assets

Bi State Region Top Businesses By Employee

Capital Assets

Cash & Cash Equivalents End Of Year

Cash Flows By Org And Net Increase In Cash Equivalents

Cash Flows

Covered Salaried Plans & Unions

Liabilities By Org & Net Position

Liabilities

Net Cash Provided-Used For Operating Activities

Operating & Non Operating Revenues By Org

Operating & Nonoperating Revenues

Pension Plans By Contributor

Pension Plans Trend 3 Years

Reconciliation Of Operating Loss

Schedule Of Funding Progress Pensions

Transit Fares

Combined Statement Net Position 2012 2013


Transit System Ridership Statistics from the Years 2003 to 2012

The first set of data analyzed is the transit system ridership statistics from the years 2003 to 2013

(Bi-State Development Agency 2013). A data trend line was estimated for each of the ridership

modes (MetroBus, MetroLink, Call-A-Ride, and system total) as well as a 10 year projection.

Current and future trends of the data estimating the models using different methods were looked

at, including a linear model and a polynomial model.

As for the linear model, it does not fit the data well: most of the 𝑅2 values range from 0.04 to

0.2, except for the Call-A-Ride trend line (Figure 1), which has an 𝑅2 of 0.6.

12


Figure 1. Transit system ridership statistics, 2004 through 2013 and trend line for 10 years

(linear regression)

The Call-A-Ride ridership trend line is stable over time and during the 10 year projection, but

this service is heavily subsidized. For the period 2004–2012, transit ridership for MetroBus and

MetroLink experienced an inflexion point in 2010. Unfortunately, because of the great variation

of the data in such a short period, it is complicated to estimate a regression model that would

predict future trends with accuracy. To attempt to find a model that fits the data better, a

polynomial trend line for the data set (except for Call-A-Ride data) was used; the polynomial

trend line shows higher 𝑅2 values for the system (before 0.04; now 0.16), MetroBus (before

0.20; now 0.22), and MetroLink (before 0.08; now 0.44) (Figure 2). The only inconvenience in

using a polynomial model is that the regression lines are now not as smooth as before, even if

they have a better fit compared to the linear model. As seen, the decline in ridership by mode

(except for Call-A-Ride) is steady and shows a very pessimistic scenario (Figure 2).

Therefore, the optimal model is ambiguous because of the variation of the data. Nevertheless, the

general conclusion is that there is a decline in the system’s total ridership driven by a decline in

MetroBus ridership.

13


Figure 2. Transit system ridership statistics, 2004 through 2013 and trend line for 10 years

(polynomial regression)

Table 7 shows the percentage change in the system total statistics with respect to previous years

(millions of persons), the system total percent change with respect to the previous year, and the

system total change with respect to 2004.

As seen in the table, from the period 2004–2005, there was an increase in ridership of 1.9%, and

the ridership statistics kept increasing at a rate of 4.5% (2005–2006) to 5.5% (2007–2008),

which was pretty good. This trend can be seen in Figure 1 as well. However, the ridership

decreased by 23% from 2009–2010 (Table 7). As explained above, the decline was mostly driven

by a decrease in ridership of MetroBus (Figure 1). After this episode, the system had a slow

recuperation, increasing ridership to 8.6% from 2011–2012 followed by a slight increase in the

next period (0.7% from 2012–2013). With respect to 2004, the ridership increased by only 3.1%

in 2013. In comparison to 2013, the ridership in 2007 and 2008 increased by double digits

(17.8% and 15.6%, respectively).

14

Table 7. Transit system ridership statistics: system total and percentage change, 2005 to 2013

Years 2005 2006 2007 2008 2009 2010 2011 2012 2013

System Total Change

(with respect to

previous year)

861,411 2,080,141 2,357,548 2,823,537 -997,877 -12,138,143 2,361,943 3,712,194 349,631

System Total Percent

Change (with respect

to previous year)

1.9% 4.5% 4.9% 5.5% -1.9% -23.0% 5.8% 8.6% 0.7%

System Total Percent

Change (with respect

to 2004)

1.9% 6.4% 11.6% 17.8% 15.6% -11.0% -5.8% 2.3% 3.1%

Source: Adapted from Bi-State Development Agency 2013

15

Table 8 shows the transit system average weekday ridership for the years 2004 to 2013.

Table 8. Transit system average weekday ridership, 2005 to 2013

System/avg.

weekday 2005 2006 2007 2008 2009 2010 2011 2012 2013

MetroBus %

Change (with

respect to previous

year)

-0.6% 8.3% -3.5% 4.7% -1.7% -26.8% 8.3% 9.8% -1.1%

MetroBus %

Change (with

respect to 2004)

-0.6% 7.6% 3.9% 8.8% 7.0% -21.7% -15.2% -6.9% -7.9%

MetroLink %

Change (with

respect to previous

year)

6.1% -5.2% 33.3% 5.0% -5.4% -15.8% 2.4% 4.9% 0.8%

MetroLink %

Change (with

respect to 2004)

6.1% 0.6% 34.2% 40.8% 33.3% 12.2% 15.0% 20.6% 21.5%

Call-A-Ride %

Change (with

respect to previous

year)

-1.2% -1.3% 0.7% 3.5% -3.8% -17.2% 4.0% 1.3% 0.3%

Call-A-Ride %

Change (with

respect to 2004)

-1.2% -2.5% -1.8% 1.6% -2.2% -19.1% -15.8% -14.8% -14.5%

Source: adapted from Bi-State Development Agency 2013

Percent change with respect to the previous year and with respect to a baseline year (2004) were

computed. As seen in the table, for the year 2010 most of the statistics decreased significantly.

The weekday ridership for MetroBus declined 7.9% in 2013 with respect to 2004, whereas the

weekday ridership for MetroLink increased by a staggering 21.5% with respect to 2004. Despite

a steady trend line for Call-A-Ride (Figure 3), the average weekday ridership declined by 14.5%

with respect to 2004.

16


Figure 3. Transit system average weekday ridership, 2004 to 2013 and trend line for 10

years

The linear trend line for the ridership (Figure 1) as well as the linear tread line for average

weekday ridership (Figure 3) projects that the ridership for MetroLink is expected to increase in

the future and the ridership for MetroBus is expected to decline. The decline in ridership for

MetroBus is projected to occur at a much faster rate, therefore causing the entire system ridership

to decline in the future.

Bi-State Service Area Population

It’s very interesting to contrast ridership statistics with the Bi-State service area population,

which includes St. Clair County, Madison County, and Monroe County in Illinois and St. Louis

City, St. Louis County, St. Charles County, and Jefferson County in Missouri. Due to the decline

in total ridership in 2010, one could extrapolate that a similar pattern is expected for the service

area’s population in 2010 (that is, a decline in population of the service area causing the ridership

to decline). However, this is not the case, because the service area population over the years

(2004–2012) has been more or less consistent. Therefore, ridership decline for St. Louis Metro

was caused by factors other than the decline in service area population.

As seen in Figure 4, the trend line for Missouri fits the data well: using a log model, the 𝑅2 is

0.47, which means that about 47% of the variation of the variable served population is explained

by time.

R² = 0.3028

R² = 0.1413

R² = 0.6465 0

20,000

40,000

60,000

80,000

100,000

120,000

Pe

rso

ns

Transit System Average Weekday Ridership Metro St. Louis 2004- 2013 and Trend line for 10 Years (linear model)

MetroBus MetroLink Call-A-Ride

Linear (MetroBus) Linear (MetroLink) Linear (Call-A-Ride)

17


Figure 4. Bi-State service area population, 2004 to 2012 and trend line for 10 years

The trend line for Illinois also fits the data well: using a linear model, the 𝑅2 is 0.92, which

means that around 47% of the variation of the dependent variable served population is explained

by time. As seen, there is not much variation, because the population served in Illinois hovers

around 500,000 persons, and the population served in Missouri ranges between 1,880,000 and

1,908,000 from 2004 to 2012. Actually, the total percent change increase in the Bi-State service

area population was 3.1% for Illinois and 1.4% for Missouri, for a total of 1.7% for the total Bi-

State service area in the years 2004 to 2012 (Table 9).

18

Table 9. Bi-State service area population, 2004 to 2012

2004 2005 2006 2007 2008 2009 2010 2011 2012

Percent

Change

2004-

2012

Illinois

St. Clair County 258,406 258,849 260,503 261,238 262,131 263,617 270,399 270,259 268,858 4.0%

Madison County 264,032 264,911 266,119 267,105 267,839 268,457 269,314 268,459 267,883 1.5%

Monroe County 30,659 31,300 31,944 32,441 32,871 33,236 33,009 33,306 33,357 8.8%

Illinois total 553,097 555,060 558,566 560,784 562,841 565,310 572,722 572,024 570,098 3.1%

Missouri

St. Louis City 350,705 352,572 353,837 355,663 356,730 356,587 319,008 318,069 318,172 -9.3%

St. Louis County 1,004,271 999,523 996,664 993,690 992,331 992,408 998,772 998,692 1,000,438 -0.4%

St. Charles County 318,743 327,594 336,422 343,833 349,595 355,367 361,725 365,151 368,666 15.7%

Jefferson County 208,186 210,615 213,768 215,904 217,599 219,046 219,056 219,480 220,209 5.8%

Missouri total 1,881,905 1,890,304 1,900,691 1,909,090 1,916,255 1,923,408 1,898,561 1,901,392 1,907,485 1.4%

Total Bi-State

Service Area

2,435,002 2,445,364 2,459,257 2,469,874 2,479,096 2,488,718 2,471,283 2,473,416 2,477,583 1.7%

Source: adapted from Bi-State Development Agency 2013

19

It is interesting to look at the percent change from 2004 to 2012 for Illinois and Missouri. Illinois

saw an increase of 3.1% of served population for the period 2004–2012, mainly driven by an

8.8% increase in Monroe County in the same period. In contrast, Missouri saw an increase of just

1.4%, partly driven by a decline of 9.3% in St. Louis City. Surprisingly, there was an increase of

15.7% in the service area of St. Charles County for that period. In conclusion, the Bi-State

service area population has slightly increased during the period 2004 to 2012, but the projections

demonstrate that the trend will remain stable; as seen, there has been a decline in the statistics for

St. Louis City, contrasting with an increase in the statistics for St. Charles County (Table 9).

Metro Transit Operating Data

Metro Transit operating revenues consist of operating revenues, operating expenses, operating

income (or loss), non-operating revenue (or expense), total non-operating revenue (or expense),

net income (or loss) before transfers, net income (or loss), and total debt. As seen in Figure 5, it

is evident that total operating expenses need to be tamed not only at present but also for the next

10 years.


Figure 5. Total operating revenues and expenses for Metro St. Louis, 2004 to 2013 and

trend line for 10 years

The 𝑅2 for total operating expenses is 0.93, and the 𝑅2 for total operating revenues is 0.89,

which means that around 90% of the variation of the dependent variable is explained by the

model. This allows us to confirm that the trend will continue as depicted in Figure 5. For

example, expenses will continue to overrun revenues if immediate measures are not taken to

curtail the expenses.

20

Figure 6 shows the principal operating revenues and expenses for the Metro system.


Figure 6. Principal operating revenues and expenses for Metro St. Louis, 2004 to 2013 and


We used a linear model to fit the data, and, as shown by the 𝑅2, the model is a good fit for the

data (𝑅2 values are between 0.86 and 0.95, except for the variable service revenue). Wages and

benefits make up the biggest operating expense for the St. Louis Metro system. The dollar

amount spent on wages and benefits is three times the amount collected from passenger revenue

(wages and benefits account for $158,765,282 in 2013 compared to $50,725,441 for passenger

revenue in the same year).

The trend shown in Figure 6 is alarming because it projects wages and benefits increasing at a

faster rate than either of the operating revenue sources, which puts into question the financial

sustainability of the Metro system. For instance, wages and benefits represent 66% of total

operating expenses in 2013; expenses in materials and supplies constitute the second most

important expense for 2013, accounting for 15.4% of total operating expenses; services

constitute 11.8% of the total; and finally casualty and liability, combined with other operating

expenses, together constitute 6.8% of the total.

The bulk of non-operating revenues are grants and assistance (Bi-State Development Agency

2013), which usually offset total non-operating revenue (expense). According to the information

retrieved from the CAFR, grants and assistance in FY 2004 and 2005 were respectively 0.96 and

2 times as large as total non-operating revenue. For FY 2004, grants and assistance were equal to

$127,982,771 compared to $133,126,164 for total non-operating revenues (so, grants were 96%

of that proportion). For FY 2005, grants and assistance were equal to $147,476,596 compared to

21

$71,785,841 dollars for total non-operating revenues (so, grants were more than twice the

amount of non-operating revenues). Despite this, the operating loss of the system (which is equal

to operating revenues minus operating expenses and depreciation or amortization) exceeds total

non-operating revenue, generating a net income loss (equal to total non-operating revenue plus

operating loss) that is progressing (Figure 7).


Figure 7. Total non-operating revenues and total debt for Metro St. Louis, 2004 to 2013

and trend line for 10 years

Finally, total debt is increasing at a staggering pace, as seen in Figure 7, reaching $559,392,536

in 2013, which represents an increase of 29.4% with respect to 2004 (in that fiscal year, total

debt was equal to $432,205,818).

22

Figure 8 shows the current situation and a 10 year trend line for the variables total assets and

total debt: when using a linear model, the 𝑅2 for total debt is a modest 0.43, but it is equal to

0.92 for total assets, which means that the variation in the variable is almost fully explained by

time.


Figure 8. Total assets and total debt for Metro St. Louis, 2004 to 2013 and trend line for 10

years

The graph shows a steady decline in total assets while total debt slowly climbs. Thus, the picture

in the future is not promising: as total debt increases, total assets decline to a point where they

are insufficient to cover the total debt (year 2021), all other things equal. Overall, wages and

benefits constitute the bulk of the operating expenses of the Metro system, and they are playing a

detrimental role in the financial sustainability.

It is worth pointing out that most operating revenues and expenses are generated by the Metro

Transit System: total operating revenues were $59,817,544 in 2013, compared to $71,622,808

(after eliminations) generated by the whole system (executive services, Gateway Arch Tram

System, Gateway Arch Parking Facility, Gateway Arch Riverfront Attractions, St. Louis

Downtown Airport, and the Metro Transit System). Total operating expenses were $324,770,572

for the Metro Transit System (including amortization), compared to $321,137,278 for the whole

system (including amortization and after eliminations). Finally, wages and benefits constituted

$158,765,282 of expenses for the Metro Transit System in 2013, compared to $164,549,736 for

the whole system (Bi-State Development Agency 2013).

23

Pension Plans

As one might expect, generous public sector pension plans are a major contribution to mass

transit unsustainability. As stated in the 2013 CAFR from Bi-State (2013), the agency sponsors

four defined-benefit pension plans, which are funded to the fullest extent possible through

investments and contributions from the entity:

The Pension Plan for Salaried Employees or Salaried Plan

The “788 O&M” Plan (Bi-State Development Agency Missouri-Illinois Metropolitan District

and Division 788 Amalgamated Transit Union, AFL-CIO Employees’ Pension Plan and

Agreement. This union represents MetroBus, MetroLink, and Metro Call-A-Ride van

operators. It is Metro’s largest union.)

The 788 Clerical Plan (Bi-State Development Agency Missouri-Illinois Metropolitan District

and Division 788, Clerical Unit Amalgamated Transit Union, AFL-CIO Employees’ Pension

Plan and Agreement)

The IBEW Plan (Bi-State Development Agency Missouri-Illinois Metropolitan District and

Locals No. 2 and No. 309 of the International Brotherhood of Electrical Workers Employees’

Pension Plan and Agreement)

Table 10 provides a brief description of the four plans’ eligibility for full and reduced retirement

benefits.

Table 10. Bi-State development pension plans and eligibility for full and reduced

retirement benefits

Salaried Plan 788 O&M 788 Clerical IBEW

Eligibility for

full

retirement

benefits

Employees retiring

after attaining the

normal service

retirement age as

defined in the plan.

Must have 5 years

of credited service.

(a) age 65 with 10

or more years of

credited service or

(a) age 65 with 10

years of credited

service or

(a) age 65 with 12

or more years of

credited service or

(b) the completion

of 25 years of

credited service or

(b) the completion

of 25 years of

credited service

(b) the completion

of 25 years of

credited service

(c) age 55 with 20

or more years of

credited service

Eligibility for

reduced

retirement

benefits

Retirement benefits

are payable

monthly for life

Participants who

have attained age

55 with 15 years

of credited service

(a) age 62 with 10

or more years

credited service or

(b) age 54 to 62

with 15 years or

more of service

All Union employees must make plan contributions by payroll

deduction each week.

Upon retirement, employees are entitled to a monthly pension

benefit, payable for life.

Source: Source: Bi-State Development Agency 2013

24

As seen, each plan has a set of different eligibility terms for full retirement benefits as well as for

reduced retirement benefits.

The schedules of the funding progress for pension plans (Bi-State Development Agency 2013)

provide useful information regarding unfunded actuarial accrued liabilities (UAAL), usually

referred to as the unfunded pension liability, from 2008 to 2012. Figure 9 provides a linear trend

line for 10 years for each of the four pension plans.


Figure 9. Unfunded actuarial accrued liabilities for all pension plans, 2008 to 2012 and


As per the graph, the unfunded pension liability is expected to increase for all four pension plans.

The 𝑅2 for all four plans is very high, ranging between 0.76 and 0.99, which means that a great

proportion of the variation in each of the four variables is explained by time.

The actuarial accrued liability (AAL) for each of the four pension plans outweighs the actuarial

value of assets, which means that the value of assets accumulated to finance pensions are

insufficient to cover the obligations. As seen in the table “Schedules of Funding Progress -

Pension Plans” (Bi-State Development Agency 2013), the UAAL for the 788 O&M Plan was

$83 million for 2012, which is the highest UAAL of all four pensions, followed by the UAAL of

the Salaried Plan ($15 million for 2012). At the bottom are the UAAL for the 788 Clerical Plan

($6 million for 2012) and the IBEW Plan ($700,000 for 2012).

The projections show that it is likely that the UAAL for the 788 O&M Plan will double within

the next 10 years, arriving at a staggering $160 million. The same is true for the three remaining

25

pension plans: the UAAL for the Salaried Plan will round up to $60 million, or four times what

is was in 2012. The UAAL for the Clerical Plan and the IBEW Plan will not experience such a

dramatic increase because they will stay below $20 million. If nothing is done to either decrease

the AAL or boost the actuarial value of assets, the scenario will be very unfavorable to the transit

system. Future revenues generated will be tied up to pay for the benefits promised to the current

and past employees, depicting a gloomy picture for Metro’s financial future.

In addition to providing data on unfunded actuarial accrued liabilities, CAFR for Bi-State

Development Agency provides data on UAAL as a percentage of covered payroll. This

percentage is derived by dividing the ratio of the UAAL by active employee payroll. The smaller

the proportion, the better the system is in financial terms. This information is concerning because

all of the UAAL as a percentage of covered payroll has been increasing from 2008 to 2012 and is

very high. For example, the UAAL as a percentage of covered payroll for the 788 Clerical Plan

ranges from 199.2% to 395.6%. The situation is alarming for the 788 O&M Plan as well because

the proportion ranges from 93.4% to 154%. Similarly, the proportion for the Salaried Plan

increased from -5.1% to 58.6% in 2012. Finally, the IBEW Plan experienced an increase from

11.3% to 24.2%. The trend line in Figure 10 shows that if nothing is done to improve the

situation, the proportion for the Clerical Plan will increase up to 900% in the next 10 years.


Figure 10. Unfunded actuarial accrued liability as a percentage of covered payroll for all

pension plans 2008 to 2012, Bi-State, and trend line for 10 years

The proportions for the three other plans (788 O&M Plan, Salaried Plan, and IBEW Plan) are

also projected to increase in the next 10 years, but will not attain the same percentage increase as

the Clerical Plan. They are projected to remain below 300%. Regardless, the increase in

proportion questions the financial sustainability of the Metro system.

26

Unfortunately, information regarding the link between wages and benefits (as part of operating

expenses) and the covered payroll that figures in the Schedules of Funding Progress – Pension

Plans (Bi-State Development Agency 2013) was not provided in the CAFR. For example,

whether the covered payroll is part of wages and benefits or is a liability set aside in another fund

is unknown.

Personnel Data

It is not surprising to know that the vast majority of employees of the whole transport system

come from the Metro Transit System: for FY 2013, Metro Transit System employees represented

97.2% of the total (2,131 versus 2,192 persons). Employees from the Metro Transit System can

be divided into two groups: employees from transit operations (1,903 for FY 2013) and

supporting members (including finance, engineering and development, marketing, and IT, among

others), for a total of 2,131. More detailed information can be found in the table Personnel Data

(Bi-State Development Agency 2013). Figure 11 shows the details of selected personnel by

function: bus operators, paratransit operators, light rail operators, and Americans with

Disabilities Act (ADA) operators.


Figure 11. Selected personnel by function, FY 2004 to 2013 and trend line for 10 years

As seen, bus operators constitute the majority of the selected personnel, experiencing a decrease

of 14 employees from 2004 to 2013. In 2009, there was a sudden decrease of bus operators,

bringing the number of bus operators to 610. The decreasing trends in personnel are evident for

bus operators and paratransit operators, the latter experiencing a decrease of 17 people from

2004 to 2013. Light rail and ADA operators have experienced a slight increase in the number of

27

operators: 26 for light rail operators and 3 for ADA operators, which represents an increase of

37% and 75%, respectively.

Vehicle maintenance is another important part of transit operations, constituting around 18% of

the Metro operations. As seen in Figure 11, the number of employees in vehicle maintenance

decreased slightly in 2010. As per the projections, the number of bus operators will decline over

time. As for 𝑅2, some values are high (paratransit operators, ADA operators, and light rail

operators), and others are very low (vehicle maintenance and bus operators). As Figure 11

shows, 𝑅2 for the variable bus operators is indeed very low, which means that the variation in the

variable is poorly explained by time.

CHICAGO REGIONAL TRANSPORTATION AUTHORITY

Quick Facts

The Chicago RTA was created in 1974 to provide financial assistance to the then-existing public

transportation operators. Over the years, the RTA acquired and operated these public

transportation providers, as well as contracted with private operators, to provide service through

the purchase of service agreements. In 1983, the act passed by the Illinois General Assembly (the

RTA Act) assigned RTA as a financial and oversight body for the three transit agencies: Chicago

Transit Authority, Commuter Rail Division (Metra), and the Suburban Bus Division (Pace).

Collectively, the RTA, the CTA, Metra, and Pace are referred to as the RTA system (RTA 2012).

See Table 11.

28

Table 11. RTA service boards and operating characteristics

Chicago Transit Authority

Metra Commuter

Rail Division* Pace Suburban Bus Division

Rapid Transit Motor Bus Fixed Route Bus ADA Paratransit Dial-A-Ride Vanpool

Routes 8 rail routes 129 bus routes 11 rail routes

138 regular routes

35 feeder routes

14 shuttle routes

7 seasonal routes

68 local

services

Stations served 145 stations 241 stations

210

communities

served

Riders per year

(millions) 231.1 314.4 81.3 32.1 3.8 1.3 2

Total Vehicles 1,200 transit

cars 1,781 buses

146 locomotives

839 passenger cars 687 buses

234 lift-equipped

buses

176 lift-

equipped

buses

694

vanpool

vehicles

*All data exclude NICTD South Shore

Source: Regional Transportation Authority 2012

29

Metra provides commuter rail services connecting downtown Chicago with communities

throughout Cook, DuPage, Kane, Lake, McHenry, and Will counties. In addition, Metra provides

services through the purchase of service agreements with the Union Pacific Railroad, Burlington

Northern Santa Fe, and Northern Indiana Commuter Transportation District. The CTA provides

bus and rapid transit service within the city of Chicago and to 40 suburbs. Pace operates fixed-

route bus services, paratransit, and vanpool services within Chicago’s suburbs (RTA 2012). The

six-county area served by the RTA system covers 3,700 square miles with a population of 8.3

million as of 2010 (RTA 2012).

The data sets examined herein are collected from the 2012 and 2013 CAFR of the RTA system.

Transit System Ridership Statistics from the Years 2003 to 2012

The first set of data analyzed is the transit system ridership statistics from the years 2003 to

2012. A data trend line has been estimated for each of the ridership modes (CTA, Metra, Pace,

and system total), as well as a 10 year projection. The trend line for CTA rail and bus fit the data

well: using a linear model, the 𝑅2 is 0.92 and 0.41, respectively, which means that 92% of the

variation of the dependent variable for CTA rail service is explained by time and 41% of the

variation of the dependent variable for CTA bus service is explained by time. The 𝑅2 trend line

for total CTA ridership is 0.92 as well (Figure 12).

Source: Regional Transportation Authority 2012 (National Transit Database)

Figure 12. RTA ridership, 2003 to 2012 and trend line for 10 years (linear regression)

R² = 0.9213

R² = 0.5247

R² = 0.1797

R² = 0.88

R² = 0.4063

R² = 0.9228

0

100

200

300

400

500

600

700

800

Pe

rso

ns

(in

mill

ion

s)

Years

RTA Ridership 2003- 2012 and trend line for 10 Years (linear model)

Total CTA Metra Pace

System Total CTA - Bus CTA - Rail

Linear (Total CTA) Linear (Metra) Linear (Pace)

Linear (System Total) Linear (CTA - Bus) Linear (CTA - Rail)

30

When attempting the regression with a polynomial model, the data fits better for both CTA rail

and bus. The 𝑅2 for CTA rail with a polynomial model is 0.97 (0.92 before) and the 𝑅2 for CTA

bus is 0.59 (0.41 before). The trend line for CTA bus with a linear model shows a steady increase

in ridership in the future, whereas the polynomial model shows a steady decline in ridership

(Figure 13).


Figure 13. RTA ridership, 2003 to 2012 and trend line for 10 years (polynomial regression)

The optimal model for this data set is the polynomial model. As for Metra and Pace, 𝑅2 is 0.8

and 0.3, respectively, using a polynomial model, which means 80% of the variation in the

ridership for Metra is explained by time and only 30% of the variation in the ridership for Pace is

explained by time (Figures 12 and 13). Using the polynomial model, 𝑅2 for the total system

ridership is 0.89, meaning that 89% of the variation in the dependent variable can be explained

by time. The CTA rail service has seen a steady increase in ridership for the period 2007–2012.

The average growth rate for the period 2003–2012 is 2.78%.

On the other hand, much fluctuation can be seen for CTA bus ridership. The CTA bus ridership

peaked at 328.2 million riders in 2008, but the average growth rate for the period 2003–2012 is

only 0.81%. Nevertheless, bus ridership has seen a slow, steady growth since 2010. During

2003–2012, the average growth rates for Metra and Pace were 1.10% and 1.88%, respectively

(Table 12).

R² = 0.9223

R² = 0.8217

R² = 0.3207

R² = 0.8987

R² = 0.5892

R² = 0.9703

0

100

200

300

400

500

600

700

800

Per

son

s (i

n m

illio

ns)

Years

RTA Ridership 2003- 2012 and trend line for 10 Years (polynomial model)

Total CTA Metra PaceSystem Total CTA - Bus CTA - RailPoly. (Total CTA) Poly. (Metra) Poly. (Pace)Poly. (System Total) Poly. (CTA - Bus) Poly. (CTA - Rail)

31

Table 12. RTA system ridership statistics: system total and percentage change, 2003 to 2012

Service

Consumed

(in millions): 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

CTA - Bus 293.6 296 305.5 299.6 309.3 328.2 318.7 306 310.4 314.4

CTA - Rail 181.1 178.7 186.8 195.2 190.3 198.1 202.6 210.8 221.6 231.1

Total CTA* 474.7 474.7 492.3 494.8 499.6 526.3 521.3 516.8 532 545.5

Metra 74 73.8 76.1 79.9 83.3 86.8 82.3 82.2 82.7 81.3

Pace** 33.7 34.1 36.9 38 39.2 40.5 35.1 35.1 37.1 39.2

System Total 582.4 582.6 605.3 612.7 622.1 653.6 638.7 634.1 651.8 666

System total

Percent

Change

-2.20% 0.03% 3.90% 1.22% 1.53% 5.06% -2.28% -0.72% 2.79% 2.18%

Average

Metra %

Change -0.27% 3.12% 4.99% 4.26% 4.20% -5.18% -0.12% 0.61% -1.69% 1.10%

Pace %

Change 1.19% 8.21% 2.98% 3.16% 3.32% -13.33% 0.00% 5.70% 5.66% 1.88%

*CTA Stat amounts include rail-to-rail transfers

**PACE 2007 Stat amount includes ADA Paratransit rides


32

In 2009 and 2010, the total RTA ridership decreased drastically after years of increase in

ridership. The percentage changes in ridership are -2.28% and 0.72% for 2009 and 2010,

respectively. In recent years, the RTA ridership has been increasing at a good pace. In

conclusion, the trend line for Pace, Metra, and total system ridership shows a pessimistic

scenario of decline in ridership in future years. CTA rail is the only aspect of the RTA system

that has a silver lining due to a steady increase in ridership at present and as forecasted by the

trend line (Figure 13).

The ridership increase for the CTA rail could be attributed to resources committed to the capital

projects. According to the 2012 CAFR, the proceeds from the bonds issued for these capital

projects are allocated by the RTA as follows: 50% for capital projects of the CTA, 45% for

capital projects of Metra, and 5% for capital projects of Pace.

The population of Chicago in 2003 was just over 12.5 million. In 10 years, the population grew

by 319,249, or 2.54%, with respect to 2003 (Table 13).

Table 13. Chicago area population and percentage change, 2003 to 2012

Fiscal Year Population

% change with

respect to 2003

2003 12,556,006

2004 12,589,773 0.27%

2005 12,609,903 0.43%

2006 12,643,955 0.70%

2007 12,695,866 1.11%

2008 12,747,038 1.52%

2009 12,796,778 1.92%

2010 12,841,980 2.28%

2011 12,869,257 2.49%

2012 12,875,255 2.54%

Source: Regional Transportation Authority 2012 (Bureau of Economic Analysis, U.S. Department of Commerce and

Bureau of Labor Statistics, U.S. Department of Labor)

The 10 year trend line for the Chicago area population has an 𝑅2 of 0.98, meaning that 98% of

the variation of the variable served population is explained by time. The trend line shows a

steady growth in Chicago area population (Figure 14). Thus, some of the increase in ridership in

recent years can be explained by the increase in population.

33

Source: Regional Transportation Authority 2012 (Bureau of Economic Analysis U.S. Department of Commerce and

Bureau of Labor Statistics Data U.S. Department of Labor)

Figure 14. Chicago area population, 2003 to 2012 and trend line for 10 years

RTA Financial Data

The RTA Act (1983) appointed the RTA as a primary public body in the Chicago metropolitan

region to secure funds for public transportation. The act authorizes the RTA to impose a series

of taxes within the six-county metropolitan region by a vote of nine of its directors: a sales tax, a

car rental tax, a motor fuel tax, an off-street parking tax, and a replacement vehicle tax (RTA

2012). Regional (occupational and use) sales tax and sales tax match from the State of Illinois

are the primary sources of operating funding for the RTA (RTA 2013). Providing financial

assistance to service boards (CTA, Metra, and Pace), interest expenses, and capital grants

provided are the major expenses.

Figure 15 shows the total primary government expenses and revenue for the RTA.

R² = 0.9835

12,000,000

12,200,000

12,400,000

12,600,000

12,800,000

13,000,000

13,200,000

13,400,000

Pe

rso

ns

Years

Chicago Area Population, 2003-2012 and 10 year trend line

Population

Linear (Population )

34


Figure 15. Primary government revenue and expenses, 2003 to 2012 and trend line for 10

years

Prior to the year 2009, the RTA was running at a loss; for example, total primary government

expenses were higher than total primary government revenues. However, for the years 2010,

2011, and 2012, the revenues were higher than the expenses, indicating a profitable transit

system for the Chicago area, but only by counting tax and subsidies as revenue. However, the

10-year projections of the data using polynomial regression show a pessimistic scenario for the

financial sustainability of the RTA in the future; for example, expenses will outgrow the current

level of tax revenues in the next 10 years if steps are not taken by the RTA to resolve this issue

in a timely manner. Using the polynomial model to fit the data, 𝑅2 values of 0.63 and 0.76 are

expressed for expenses and revenues, respectively; for example, 63% and 76% of the variation of

the dependent variables are explained by the model.

The public transportation fund (PTF) consists of 30% of net revenues realized from sales taxes

and real estate transfer tax (RETT) paid to the RTA only upon state appropriation (RTA 2013).

As shown in Figure 16, the projections for the PTF indicate an increase in funds in the next 10

years. 𝑅2 for the PTF trend line is 0.9, which means that 90% of the variation of the dependent

variable is explained by the polynomial model used.

R² = 0.6349

R² = 0.7564

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

$1,600,000

$1,800,000

Do

llars

(in

th

ou

san

ds)

Years

Primary Government Total Revenue and Expenses, 2003- 2012 and trend line for 10 years

Total primary governmentexpenses

Total primary governmentrevenues

Poly. (Total primarygovernment expenses )

Poly. (Total primarygovernment revenues)

35


Figure 16. Expenses, 2003 to 2012 and trend line for 10 years

Similarly, the 𝑅2 for state assistance is 0.72, which means that 72% of the variation in the

variable is explained by time. The 10 year trend line shows an imminent decline in the state

assistance to be received by the RTA. Unfortunately, the polynomial model used fails to explain

the variation of the dependent variable with respect to investment income and sales taxes because

𝑅2 is 0.22 and 0.04 for sales tax and investment income, respectively.

The administrative expenses almost doubled from $8,918,000 in 2011 to $16,507,000 in 2012.

The trend line for administrative expenses shows a steady increase for the next 10 years. The 𝑅2

for administrative expenses is 0.68, which means that 68% of the variation in the variable is

explained by time (Figure 17).

R² = 0.22

R² = 0.9009

R² = 0.724 R² = 0.0404

($400,000)

($200,000)

$0

$200,000

$400,000

$600,000

$800,000

$1,000,000

$1,200,000

$1,400,000

Do

llars

(in

th

ou

san

ds)

Years

Expenses 2003-2012 and trend line for 10 years

Sales taxes

Public Transportation Fund

State assistance

Investment income

Poly. (Sales taxes)

Poly. (Public TransportationFund)Poly. (State assistance)

36


Figure 17. Revenue sources, 2003 to 2012 and trend line for 10 years

The financial assistance provided to the service boards are projected to increase rapidly over the

next 10 years (Figure 17). The 𝑅2 for the financial assistance provided to the service boards is

0.86, meaning that 86% of the variation in the variable is explained by time.

In summary, the increase in financial assistance provided to the service boards, the increase in

administrative expenses, and the decrease in state assistance as well as the increase in the PTF

projected by trend lines for the next 10 years all point towards the financial instability of the

RTA system. Decreased revenue sources and increased public assistance will create a burden for

taxpayers in upcoming years if steps are not taken to decrease expenses as well as increase

revenue sources for the RTA system.

Pension Plans

As stated in the 2012 CAFR from RTA, the RTA, along with Metra and Pace, participates in a

cost-sharing multi-employer noncontributory defined benefit pension plan known as the

Regional Transportation Authority Pension Plan. This pension plan is funded solely by employer

contributions and covers employees that are not covered by a union pension plan. Using the

projected unit credit actuarial method, the RTA, Metra, and Pace are required to contribute

amounts to fund the benefits of their respective employees. As of January 1, 2012, the pension

plan was 70.4% funded (the underfunded actuarial accrued liability was $59.457 million). In

addition to the pension plan, the RTA provides postemployment benefits of limited health care

insurance coverage for its eligible retired employees. Metra and Pace do not participate in this

postemployment benefit plan.

R² = 0.2089

R² = 0.8615

R² = 0.6944 R² = 0.6763

R² = 0.5885

($500,000)

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

Do

llars

(in

th

ou

san

ds)

Years

Revenue Sources 2003-2012 and trend line for 10 years

Financial assistance to ServiceBoardsTotal administration capitalgrantsInterest expense

Administrative expenses

Administration of operatinggrant- CTA/PACEPoly. (Financial assistance toService Boards)Poly. (Total administrationcapital grants)

37

Figure 18 projects the actuarial value of assets and accrued liability to increase in the next 10

years and covered payroll (annual payroll of active employees covered by the pension plan) to

decrease steadily during the same time period.


Figure 18. Actuarial value of assets, actuarial accrued liability, and covered payroll, 2007

to 2012 and trend line for 10 years

The polynomial model was used to fit the data, and, as shown by the 𝑅2, the model is a good fit

for the data because the 𝑅2 values are between 0.82 and 0.99. This means that a great proportion

of the variation in dependent variables is explained by time. From 2007–2012, the AAL of the

pension plan outweighed the actuarial value of the assets. The projection for the next 10 years

suggests that the situation will remain the same. For the same period, the AAL increased by more

than twice the actuarial value of assets (actuarial value of assets increased by $38,864,169 and

actuarial accrued liability increased by $66,939,115 from 2007–2012). The rate of increase

indicates a threatening picture for the financial sustainability of the pension plan.

In addition, the funded ratio for the pension plan decreased from 76% in 2007 to 70% in 2012.

UAAL as a percentage of covered payroll increased from 51.1% in 2003 to 88.5% in 2012

(Figure 19).

R² = 0.9157

R² = 0.995

R² = 0.8187

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

Do

llars

Years

Actuarial Value of Assets, Actuarial Accrued Liability and Covered Payroll 2007-2012 and trend line for 10 years

Actuarial Value of Assets

Actuarial Accrued Liability(AAL)

Covered Payroll

Poly. (Actuarial Value ofAssets )

Poly. (Actuarial AccruedLiability (AAL))

Poly. (Covered Payroll )

38


Figure 19. Funded ratio and UAAL as a percentage of covered payroll, 2007–2012 and


The trend line shows that the funded ratio of the pension fund will continue to increase in the

next 10 years, and UAAL as a percentage of the covered payroll will continue to decrease during

the same time period. The projection has 𝑅2 values of 0.67 and 0.78 for the funded ratio of the

pension fund and for UAAL as a percentage of the covered payroll, respectively. Figure 20

shows that the employer contribution to the pension plan is increasing year after year.

R² = 0.6974

R² = 0.7802

-200

-150

-100

-50

0

50

100

150

Rat

io

Years

Funded Ratio and UAAL as a Percentage of Covered Payroll

Funded Ratio

Unfunded AAL as aPercentage of Covered Payroll

Poly. (Funded Ratio )

Poly. (Unfunded AAL as aPercentage of CoveredPayroll)

39


Figure 20. Required employer contribution, 2007–2012 and trend line for 10 years

An 𝑅2 of 0.97 for the data set means that the variation in the variable is almost fully explained by

time. In conclusion, the data and the projection of the data using polynomial regression indicates

that the actuarial accrued liability will continue to increase in the future and that the pension fund

will be underfunded and will therefore play a detrimental role in the financial sustainability of

the RTA system.

The figures above for Bi-State and RTA help illustrate the severity of the financial calamity that

mass transit systems are facing all across the United States. If the scope of this paper were to be

expanded, other mass transit systems within the United States would exhibit a more or less

identical picture. The gaps between operating revenues and operating expenses and between the

actuarial value of assets and liabilities are widening annually. Furthermore, the subsidies

provided by various levels of government are increasing yearly. These trends illustrate an

alarming scenario that will be analyzed further below.

ANALYSIS OF CASE STUDIES

The availability and affordability of automobiles encourage people to move farther out from the

city, creating suburban areas and reducing the need for mass transit services for these

individuals. However, mass transit services are essential for the mobility of individuals who

simply cannot afford the luxury of a personal vehicle. The benefits provided by the mass transit

systems are concentrated on the consumers who use them, while the costs are widely dispersed

amongst taxpayers. Core consumers of mass transit are those who habitually use the services

provided by mass transit systems. Therefore, it is crucial to identify the core consumers of mass

transit service and provide high-level services geared towards this consumer base.

R² = 0.9737

$0

$5,000,000

$10,000,000

$15,000,000

$20,000,000

$25,000,000

$30,000,000

$35,000,000

Do

llars

Years

Required Employer Contribution 2007-2012 and trend line for 10 years

Required Contribution

Poly. (Required Contribution)

40

In 2012, local taxpayers provided about 30% of the total funding for mass transit systems (Table

2). With such large public subsidies coming from local tax payers spread across all geographic

sectors of the city, mass transit authorities feel obligated to offer services to all parts of the city,

irrespective of the expected ridership demand and usage. This notion of expanding transit

services across all geographic sectors of the city is not only idealistic but also cost inhibitive. In

addition, expanding transit services to areas of low demand consequently leads to diluting

services in areas of high demand. Instead, mass transit authorities need to recognize the

importance of redirecting services from the suburbs to urban areas or cities where the core

consumers of mass transit service reside.

As seen in the case studies of Bi-State and Chicago RTA, pension plans are underfunded and

create an enormous liability to both transit agencies. There are two types of pension plans,

namely defined contribution pension plans and defined benefit pension plans. Approximately

three-fourths of the workers that are covered by pension plans are covered by defined benefit

contribution plans, and the remainder are covered by defined benefit plans. Defined benefit plans

are pension plans in which the employee’s pension payments are calculated according to the

years of service provided by the employee and the average of the last couple years of salary

earned at the time of retirement. For defined contribution pension plans, the payments are not

guaranteed at retirement, but the employer contributes funds on behalf of the employees

throughout the employment period (Spiceland et al. 2013).

Most government agencies in the United States have defined benefit plans for their employees.

About 90% of state and local governments provide defined benefit plans to their employees

(CNN n.d.). According to an article by the Office of Retirement and Disability Policy, in 2006

about 33% of state and local government pension plans were less than 80% funded. This

percentage increased to 46% when the stock market crashed in 2008. Despite the greater

economics of defined contribution plans over defined pension plans, the public sector has seen

very little shift from defined benefit plans to defined contribution plans. So far, only Michigan

and Alaska have plans that require new employees to join a defined contribution plan (Butrica et

al. 2009).

Regarding defined benefit plans, the agencies are responsible for making decisions about how

much money to contribute to each individual’s pension plan and how to invest it. These pension

plans tend to be expensive for the agencies, and there is a higher probability of the plans being

underfunded. At the time of retirement, transit employees have the opportunity to retire with full

salary as pension payments (for example, “golden parachute”). For example, if an employee

worked overtime hours during the last years of his/her employment, this amount would be

included in the calculation of the pension amount, resulting in bigger pension payouts.

Changing the labor agreement related to pension plans will be a positive step towards future

financial sustainability for mass transit systems. According to the information provided by Metro

Transit – St. Louis, the Salaried Plan and IBEW Plan were closed to new entrants effective July

1, 2013 and January 1, 2014, respectively. After July 1, 2013, new salaried employees receive an

annual agency contribution of 4% to their 401k account, whereas employees hired on or after

41

January 1, 2014 for the IBEW will participate in a defined contribution plan. There were no

changes made to the 788 ATU O&M and the 788 ATU Clerical plans (Bryant 2014).

The existence of the enormous pension liabilities in the balance sheet of governmental agencies

fueled by the defined benefit plans will ultimately lead these agencies into bankruptcy. For

example, last year the City of Detroit filed for Chapter 9 bankruptcy, which was the largest

municipal bankruptcy filing in U.S. history. The estimated debt for the City of Detroit at the time

of bankruptcy was over 18 million dollars. One of the major reasons cited for this unfavorable

outcome was the legacy costs—pensions and health care plans—owed by the city to its

pensioners. In 2012, the legacy costs comprised 18% of the City of Detroit’s total spending, up

from 8% in 1960. In addition, the city’s total funded retiree health care benefits rose 19% from

2007 to 2011. Over the years, the City of Detroit’s leaders not only failed to take actions to

reduce the legacy costs but also missed opportunities to overhaul the retirement benefit plans.

For example, in 1997 the City of Detroit did not follow in the footsteps of the State of Michigan

in switching from pension to 401(k) plans (Bomey and Gallanger 2013).

There are several lessons that mass transit authorities can learn from the experiences of the City

of Detroit. First, mass transit authorities need to fully understand the future consequences (for

example, liabilities) of having defined benefit plans for their employees. Second, these plans

need to be phased out in favor of defined contribution plans. Last, the public transit authorities

need to carefully assess the following question: “Do public transit systems have to go through

bankruptcy before necessary changes are implemented?” If the answer is no, steps must be taken

towards implementing changes mentioned herein.

Thirty-eight years ago, Mundy (1976) stated that the utilization of vehicles and labor during non-

peak hours of operation is a major challenge faced by urban mass transit systems. This situation

is still true today. Mass transit systems have not yet succeeded in operating at an efficient

economic level. As per Mundy (1976), fixed costs could be reduced via utilization of owner-

operated equipment. In addition, Mundy suggested that the provision to contract out services

during peak periods will help reduce or eliminate the dependency of mass transit systems on

operating subsidies (Mundy 1976). The mass transit systems have had 38 years to implement

Mundy’s (1970) suggestions, but have failed to do so, partially because of the artificial barriers

set by the federal government. For example, the notion that only public transit systems can

provide mass transit services hinders competition by making it difficult for private companies to

enter into the industry. Additionally, the prevalence of Section 13(c) of the Federal Transit Law,

which ensures the continuance of collective bargaining right (for example, unions) and

protection of wages and benefits along with transit employees’ other employment conditions

should the transit systems be privatized, obstructs private parties from entering into the mass

transit industry. Furthermore, Section 13(c) obstructs the use of federally funded vehicles by the

private sector.

The union contract provided by the Bi-State Development Agency prohibits subcontracting work

that is necessary for the operation or maintenance of revenue vehicles, except in cases of

emergency or when the work cannot be performed by their employees, even though many drivers

are only needed part time. These barriers prevent mass transit systems from experimenting with

42

the private sector to provide peak-time services or bidding out certain routes, as suggested by

Mundy (1976). Considering the financial difficulties that the mass transit systems are facing

today, it is time for the mass transit authorities to take a step towards experimenting with viable

alternatives to make mass transit systems financially sustainable once and for all.

VIABLE ALTERNATIVES

As this paper has advocated, the future of mass transit systems, in regards to their ability to

increase ridership and financial sustainability, is in peril. However, there are viable alternatives

that could help mass transit systems take steps toward future sustainability. Among the various

methods of revised and sustainable mass transit systems to be implemented, the most common

appear to be privatized light rail; restructuring transit routes and peak times; and varying degrees

of bus system improvements, including bus rapid transit (BRT), comprised of privately owned

buses using private sector employees. Indeed, inviting the private sector to shoulder a portion of

the financial burden could reward a currently failing and outdated system with new life. For

example, maintaining core infrastructure and operating mass transit activities within the public

sector can still allow for the private sector to fill gaps within transit peak times or even

implement trials and beta tests of innovative transit changes. This collaboration is a win for both

sides, in that the private sector is allowed to realize profit for service and innovation while the

public sector benefits in relinquishing its dependence on government subsidies by instead

outsourcing local support. It is time for mass transit to focus on its foundation—the need to

deliver affordable and sustainable transit systems to the masses—rather than provide job support

to a failing industry.

In establishing alternatives in mass transit systems, the majority of costs associated with

implementing the project are capital; activities such as altering or creating transit right-of-way,

building or updating stations and stops, purchasing vehicles, and environmental accommodations

are expensive, but these should be considered one-time expenditures. Most cities that have

adequate capital funds, or a means to raise them through local taxes, often opt for light rail

systems. However, as exemplified in multiple countries such as Brazil and Columbia, with

increasing economic strain on government funds and consumer tax contributions, many cities are

foregoing light rail systems for BRT systems because they allow for not only optimal sustainable

change at a lower cost, but also the flexibility to increase ridership over large geographic areas

(Ashmore and Obregon 2011). Additionally, these transit systems that have little public funding

often farm out services on which the private sector can bid, providing superb system support and

increasing overall success.

In a study of 13 cities in various global locations over the last 50 years, the most frequently listed

reasons cities indicated needing a new approach to their mass transit system were the following:

Transit budget deficits

High traffic congestion

Slow commute times/unreliable service

Disorganized and inefficient transit routes

Disorganized and over-crowded service providers

43

Need to service more low-income populations

Combating poor air quality

However, perhaps one of the biggest failures attributed to revamped mass transit initiatives is the

inability to consider consumer needs in order to increase ridership. Reasons for these failures

include the following:

Poorly focused target market initiatives

Misaligned and unclear transit structure strategies

Lack of consumer interest due to unperceived benefits

(Ashmore and Obregon 2011, Coleman et al. 2013, FHWA n.d., Global Mass Transit 2011,

Goldwyn 2013, Hensher 1999, Leland 2009, Levinson et al. 2003, Lindau et al. 2007, Overdorf

2012, PPP Forum Limited 2014, United Nations Economic and Social Commission for Asia and

the Pacific (ESCAP) 2011, Whitfield 2001, The William and Flora Hewlett Foundation 2011)

As outlined in Overdorf (2012), New Delhi has experienced all of these problems in the failure

of its BRT project. First, the design of the transit system proved unable to alleviate mass traffic

congestion and improve commute time due to the flawed placement of stations. The designers

also targeted the wealthy, politically influential, and car-loving middle class as their target

market instead of the lower and car-less classes, ensuring that neighborhoods where car parking

was heaviest also had the highest traffic congestion. Finally, there was no incentive offered for

those who chose commuting via BRT, as it proved to have longer commute times than car or

bicycle, while the penalties associated with personal vehicles (for example, parking tickets,

speeding) remained low and unwavering.

Therefore, the recommendations for successfully implementing viable and sustainable mass

transit alternatives include:

Prioritizing strategy alignment;

Service differentiation;

Offsetting financial risk by inviting local partner investment;

Fostering consumer ownership to gain interest, awareness and support; and

Utilizing public sector support to reduce government subsidies.

Utilization of Public-Private Partnerships

More financially conservative options include mass transit alternatives comprised of public-

private partnerships (PPP) that greatly offset costs to taxpayers while simultaneously stimulating

the local economy. The existence of private corporations, unlike government entities, is solely

dependent on the competitive market forces of supply and demand. In order for private

organizations to exist, let alone maintain competitive advantage, they must constantly reinvent

themselves through product and price differentiation strategies. Corporations have the most

44

incentive to innovate and are known for their dynamism, which may be just what the dated and

struggling mass transit industry needs. Government entities, due to their bureaucratic nature, are

plagued by inefficiencies caused by lack of incentives and due to natural union pressure,

compounding their inability to reduce costs. As shown, these inefficiencies have pushed many

mass transit authorities towards financial instability and ever-increasing dependence on general

taxpayer support.

A partnership between the efficient and dynamic private sector and the steadfast security of the

government sector is a strong solution for the financial sustainability of mass transit systems

going forward. Offsetting risk to private investors allows them to do what they do best: keep

employee compensation relative and competitive, maintain efficient vendor partnerships,

effectively measure and influence consumer behavior, and ultimately grow profit margins.

The United Kingdom has been a pioneer in using public-private partnerships to strengthen its

infrastructure. Executed and refined throughout the 1990s, it was a strategy introduced in hopes

of improving profound overspending and unsatisfactory public infrastructure projects while

simultaneously promoting healthier public and private sector relationships (PPP Forum Linited

2014). The model used in the United Kingdom is known as private finance initiatives (PFI), in

which design, construction, financing, operating, and maintenance of facilities are bundled into a

long-term contract with a consortium of firms (Siemiatycki 2011). For example, the United

Kingdom’s prison system has successfully implemented the PFI model to provide adequate

facilities and a healthy environment for prisoners by creating a competitive marketplace for

service providers, keeping costs down and service quality high (Gabriel and Head 2006). Early

transit infrastructure improvements include a rail link to the Channel Tunnel and a second Severn

Bridge (Whitfield 2001). In recent years, countries across the globe have implemented similar

PFI models extensively to build a diverse range of high-quality and competitively healthy

infrastructures.

State and local governments, as well as transportation agencies, in the United States have already

started using PPPs to finance government road infrastructure, citing the Chicago Skyway, San

Diego’s South Bay Expressway, and toll lanes in northern Virginia as examples found on the

FHWA’s website (FHWA n.d.). Authorities need to take advantage of the benefits provided by

PPPs and utilize these partnerships as one method of reaching mass transit sustainability. For

example, instead of contracting out various areas of mass transit infrastructure to different

independent parties (construction, operations, maintenance), mass transit systems in the United

States could bundle these areas together and foster a long-term partnership with a consortium of

firms. This allows the private firms to take on the risk of securing competitive products and

services in an efficient manner while meeting priorities set forth through the PPP agreement. As

a result of the benefits of using PPPs, the minimum standards for the entire industry would be

upgraded, maintained, and likely even surpassed.

Reducing Costs and Increasing Revenue

As simple as this solution may sound, it could be equally difficult to implement cost reduction

and revenue increment measures. As established by the literature review, the unions usually have

45

a strong hold in the public sectors and are opposed to cost reductions via cutting salaries and

benefits, which constitute a major operating cost for mass transit systems. Applying the

fundamental concept of supply and demand (for example, as prices for goods increase, the

demand for those goods decrease), an increase in fares would lead to a decrease in ridership.

Therefore, increasing revenue via increased fares would be difficult to implement in practice

without expecting a decline in ridership.

According to Buehler and Pucher (2011), regulated competition and private sector involvement

has proved to be successful in Germany in operating mass transit systems. In addition, Germany

implemented cost reduction and revenue enhancement measures to improve the financial

performance of public transport. The cost reduction measures included cutting employee benefits

by renegotiating labor contracts, increasing work hours, freezing salaries, implementing early

retirement programs, organizational restructuring, outsourcing subsidiaries, cutting underutilized

routes, and shifting resources to the most lucrative services, among others. The revenue

enhancement measures included fare increases; regional coordination of timetables, fares and

policies in metropolitan areas; region-wide monthly or annual tickets that provide discounts

compared to single trip fares; full integration of public transport with walking and cycling; cost

increases for automobile use; and clustering of new development around transit stops. The

implementation of the cost reduction measures in Germany had some negative consequences,

such as reduction in wages for new hires and reduction of the frequency of services provided, but

improved transit sustainability with additional public funds (Buehler and Pucher 2011).

Historically, Germany has had stronger labor unions than the United States. If Germany was able

to negotiate with its labor unions and come to an understanding in terms of making transit

systems more cost effective, then why can’t the United States? In applying the German

experience to U.S. mass transit systems, transit authorities need to consider the resistance from

the public transit unions. In the short run, resistance from the public unions is inevitable.

Keeping this in mind, mass transit system authorities in the United States need to negotiate new

contracts with the unions as they threaten the viability of mass transit sustainability. Increasing

work hours is unrealistic, but using split shifts and part-time drivers, which would greatly reduce

the variable operating costs of existing operations, is negotiable. Also, organizational

restructuring and outsourcing service delivery to the private sector, as well as cutting

underutilized routes, are practicable solutions to reduce costs for mass transit systems in the

United States.

Although Germany and the United States are comparable economies, there are factors that are

unique to the United States that need to be considered in applying the German experience to the

United States:

For the last 60 years, all levels of U.S. government policies—federal, local, and state—have

been favorable for the automobile, unlike the governmental policies in Germany (Buehler et

al. 2013).

Unlike in Germany, where various levels of government interactively coordinate their land-

use plans, in the United States land-use planning is fragmented and lacks coordination

between different levels of government. In addition, land-use planning is not integrated with

46

planning for transportation in the United States (Buehler et al. 2013).

Gas is twice as expensive in Germany as in the United States. Similarly, the price of

automobiles is higher in Germany than in the United States.

Favorable government policies for automobiles combined with cheap gas and relatively

inexpensive automobiles have enabled the public to purchase and maintain personal transport as

opposed to opt for mass transit systems in the United States. The case is the exact opposite in

Germany, where dense populations and social culture are built around public transit, and owning

a personal automobile is not a common, prudent expenditure. Given these reasons, some would

argue that there are some difficulties in adjusting the cost reduction and revenue increment

measures applied in Germany to the United States, especially Germany’s disincentive to

automobile use.

We can begin to improve our own transportation system by building on the fact that the United

States is not Germany, and transportation methods that work there just won’t work in the United

States. Despite the classic American mentality, we cannot have both a well-supported public

transport system and well-funded, endless highway systems, all successfully supported by an

efficient, proactive, and financially sound government. What we can do is learn by the successful

examples of other countries and make those successes our own. Most United States mass transit

systems have been in decline for a long time, so it’s time to retire them and adopt better, more

relevant, sustainable systems. The transit authorities in the United States may have no alternative

but to work towards enhancing coordination among different public transportation modes,

quality of service, and accessibility of all networks.

Contracting Out Transit Services to Private Parties

Much research has been conducted on whether or not contracting out transit services to private

parties provides efficient asset utilization. Some results, such as those exhibited in Curitiba and

Bogota, Colombia, claim success due to collaboration, whereas others claim that inviting

privatization fails to yield effective change (Ashmore and Obregon 2011, Overdorf 2012). The

reason cited against contracting out transit services is that it fails to create innovation in

operations and service levels. However, claims of collaboration failure typically stem from the

union representatives who are understandably more supportive of a unionized employee industry

rather than a nonunionized employee industry. In fact, the use of the private sector creates a

competitive work environment, allowing for optimal costs for service while eliminating outdated

pension plans and other benefits that take advantage of flagrant government overspending. The

result is lower cost, higher quality, and potential profit for the private sector. Such innovation is

precisely what the mass transit authorities can utilize to ensure quality services are provided to

transit riders at an affordable price.

Use of Competitive Tendering of Routes

Profitability of a route depends on the ridership. Routes with historically lower ridership drain

financial resources and provide benefits to a limited number of people. Creating an efficient

network of mass transit systems requires transit authorities to remove the routes that are

47

underutilized and focus resources on routes that have historically high ridership. This revised

system offers two profitable solutions where there used to be none: eliminating the dependence

on subsidies to maintain underutilized routes and capitalizing on routes with the highest demand

to drive profit. Then, these routes that are potentially profitable can be made available for

competitive tendering. The bidder who is capable of generating a profit along with maintaining

quality of service should be allowed to run the route. According to Amaral et al. (2009), London

has successfully implemented a competitive tendering of its urban transit systems that consists of

800 routes covering 629 square miles.

Innovation to Increase Ridership

The pundits supporting mass transit argue that transit agencies create jobs within the community

and foster economic growth. In reality, the jobs created by mass transit systems are government-

funded positions that drain taxpayer dollars if used inefficiently. In addition, one can argue that it

is not the duty of public agencies to create jobs. However, public officials do have a duty to

service the general public (taxpayers) in the most efficient and innovative way possible.

Over the years, mass transit sectors in the United States have seen little real innovation geared

towards improving service and attracting ridership. For example, new buses and rail cars do

nothing to change the speed and service characteristics of mass transit and therefore are not

innovative changes. If public funds are to be utilized for mass transit, they should be used for

innovative services that provide the one amenity consumers desire: time. For example, publicly

provided mass transit systems in Japan have seen technological innovation over the years

encompassing the needs as well as demands of the riding public. Most notable has been Japan’s

bullet train service, which drastically reduces travel time. Currently, Japan has one of the most

efficient public mass transit systems, transporting over eight million passengers daily (Voyer

2011).

Over the years, the Japanese transit systems have set a high standard within the mass transit

industry in terms of quality of service provided to the riders. It has been 50 years since Japan

introduced the first bullet train, which travelled at the speed of 130 miles per hour. Over these 50

years, constant innovation has improved the speed of Japanese trains almost threefold to 320

miles per hour (McKean 2014). Unfortunately, none of these truly innovative systems and

immense public moves above has made it overseas to the United States, despite the fact that the

transit systems in the country have had 50 years to implement the changes.

Similarly, technology network companies (TNCs) like Uber and Lyft grew out of the public’s

poor perception of cab services on the west coast of the United States. The technology

companies have taken the taxi riding public by storm, especially in the cities like San Francisco,

San Diego, and New York. Despite all the controversies around these tech companies, we have

to see the market innovation that fueled this newborn industry: the creation of a mutual platform

that serves both drivers and riders, dispensed at the tip of the user’s fingers with only a single

click. TNCs have capitalized on both the accessibility of smart phones and the reliance of tech-

savvy individuals on their phones. This entire industry is based on the convenience provided by

sophisticated apps and the ability of those apps to capitalize on the preferences of the taxi riding

48

public. At the same time, TNCs attempt to avoid any safety regulations or insurance

requirements that regulate the taxi cab industry. Can mass transit learn from these nascent

companies? Probably, yes. The technologies used by TNCs can be customized to fit the needs of

mass transit riders and improve their utilization of mass transit systems.

The future financial sustainability of mass transit depends on the ability of mass transit systems

to shift their involvement from owning and operating public transportation services to supporting

and encouraging the private sector to operate and create different services for different public

needs for transportation. Only in this way can increased ridership levels be achieved. Doing the

same thing year after year and expecting different results is obviously no solution, and time and

money are getting short. The innovations mentioned above, and others, would help brand mass

transit in an entirely new light. These changes would not only show that mass transit systems are

financially reliable, but also that mass transit systems are incorporating the demands and needs

of their riders.

Public Policy Implications

This review of the financial sustainability of U.S. mass transit systems would appear to be rather

negative if it were not for the efforts of other nations to rethink their public transit policies and

turn to the private sector for both creativity and innovation. Readers should note that the work

does not call for a reduction in financial support for mass transit but rather a redirection of funds

for greater efficiency and effectiveness. Public transit in the United States must relieve itself of

the negative financial future it faces unless major policy decisions are made to significantly

reduce the public service workforce and thus operational subsidies for mass transit. In the short

run, this will necessarily include using mass transit assistance funds to keep the retirement

promises it has made to current and past public employees, but, as this work has shown, there is

little other choice. Intuitively, this is difficult for public policy decision makers who have lived

in an era of larger and larger public entities as the solution to urban problems. However, as city

budgets and community services crumble under their oppressive weight, decision makers will

have little choice but to turn to the private sector for the provision of these services. The sooner

this is realized, the sooner financial bleeding can be stopped and changes enacted that would

return the provision of public transportation back to the private sector.

49

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